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U.S. House Panel Approves Asbestos 'Double-Dipping,' Litigation Reform Bills

Forbes, February 16, 2017

By: Jessica Karmasek

The U.S. House Judiciary Committee has approved a bill that targets the country’s current asbestos injury compensation system and another that aims to weed out unmeritorious class action claims.

Early Wednesday, the committee passed the Furthering Asbestos Claim Transparency, or FACT, Act of 2017 by a vote of 19-11.

The panel, in a vote later in the day, passed the Fairness in Class Action Litigation Act of 2017, 19-12.

House Judiciary Chairman Bob Goodlatte, R-Va., praised the FACT Act’s approval.

“Asbestos victims often spend years in the courts to have their legitimate claims addressed and properly adjudicated. Many must look to the bankruptcy and asbestos trusts as the best way to seek compensation for their injuries,” he said in a statement after the vote. “However, the unfortunate truth is that some dishonest parties take advantage of the asbestos trusts due to the lack of transparency within our current bankruptcy laws. This fraudulent activity can reduce the amount of funds available to deserving parties.

“The FACT Act requires bankruptcy trusts to be transparent like other courts. This will ensure deserving victims receive the maximum relief for their illness and injuries, while preserving privacy protections, and weeding out bad actors who would take advantage of the system.”

U.S. Rep. Blake Farenthold, a Republican from Texas who serves as vice-chairman of the Regulatory Reform, Commercial and Antitrust Law Subcommittee, said the legislation is needed.

“The FACT Act will protect current and future victims of asbestos exposure by helping ensure the trust funds set up to pay claims remain solvent,” he said in a statement Wednesday. “Without the FACT Act, unscrupulous attorneys and bad actors can continue to bring duplicative claims to multiple trusts, thereby draining the funds available for future victims.

“This legislation is also crafted to protect the privacy of victims and combat the fraud and abuse currently plaguing the system.”

Farenthold, who also serves on the House Committee on Oversight and Government Reform, re-submitted the GOP-backed bill last week. Goodlatte and Tom Marino, R-Pa., are listed as cosponsors.

The FACT Act, or H.R. 906, would increase transparency in the asbestos trust system, in which about 100 companies that were targeted frequently by asbestos lawsuits declared bankruptcy to establish trusts to compensate victims.

Elizabeth Peace, a spokeswoman for Farenthold, told Legal Newslinethat H.R. 906 is the same version that was introduced last Congress.

The 2017 version has not been folded into the Fairness in Class Action Litigation Act or any other legislation, or at least not yet, Peace noted.

The class action bill was introduced in April 2015 and merged with the FACT Act in January 2016.

The House passed last year’s Fairness in Class Action Litigation and Furthering Asbestos Claim Transparency Act, or H.R. 1927, by a vote of 211-188. Additional hearings were held by the Senate, but ultimately it failed to move on the legislation.

Former President Barack Obama would have vetoed the bill had it passed the Senate.

Farenthold’s previous bill, H.R. 526 or the Furthering Asbestos Claim Transparency Act of 2015, stalled in committee.

The initial version of the bill passed the House in 2013; Farenthold again was the sponsor.

Like previous versions, the bill would require quarterly reports on claims made to the trusts while taking measures to protect claimants’ personal information.

It also would require trusts to respond to information sought from them by defendants in asbestos lawsuits. Defendants in those lawsuits want to ensure that plaintiffs’ attorneys aren’t fully blaming their products while also blaming the products of companies that established trusts.

It is a practice that was brought to light in Garlock Sealing Technologies’ bankruptcy proceeding.

Goodlatte also applauded the judiciary committee for its prompt approval of his class action legislation. Goodlatte reintroduced the legislation Friday.

“Class action suits were designed to address legitimate claims. These suits were supposed to level the playing field for consumers and businesses alike to have access to a fair and just system to address their grievances,” he said in a statement following H.R. 985’s markup and approval.

“Today, the class action litigation system has morphed into an expensive enterprise where lawyers are often the only winners, and American businesses and consumers are the losers. Frivolous class action lawsuits are costing parties millions of dollars, and trial lawyers often profit at the expense of deserving victims.”

Goodlatte, the bill’s sponsor, was one of the authors of the Class Action Fairness Act, which was enacted in 2005.

“Over 10 years ago, I authored the Class Action Fairness Act, which was signed into law to curb abuses in the class action litigation system. Since then, lawyers have been able to find loopholes in the law, and new measures are required to protect innocent individuals and businesses who have become the victims of frivolous suits,” he continued.

“When baseless claims come into our courtrooms, the real losers are hardworking Americans. Today’s action addresses the abuses within our class action litigation system, and keeps baseless class action suits away from innocent parties, while still keeping the doors to justice open for parties with real and legitimate claims.”

Among the legislation’s reforms, it requires that classes consist of members with the same type and scope of injury.

Also under the proposed legislation, uninjured or non-comparably injured parties can still join class actions, but must do so separately from parties that experienced more extensive injury.

The bill contains additional provisions to:

- Prohibit judges from approving class actions in which the lawyer representing the class is a relative of a party in the class action lawsuit;

- Require that class action lawyers should only get paid after the victims get paid; and

- Order any third-party funding agreement be disclosed to the district court.

It has become commonplace for third-party funders to pay the owner of a civil claim upfront in return for the claim owner’s promise to convey a portion of the potential recovery.

This brings tax advantages for both the third-party funders and class action plaintiffs attorneys, allowing them to defer tax liability on the monetary advancement until the claim pays off while the funders deduct expenses and pay taxes on profit accrued at the lower capital-gains rate.

However, these agreements routinely are entered confidentially.